UncategorizedComments Off on Berkshire Hathaway Owns $2 Billion of AT&T

Jul242015

On July 24, 2015, AT&T completed its $49 billion acquisition of DirecTV. Under the terms of the merger, DirecTV shareholders received 1.892 shares of AT&T common stock and $28.50 in cash, per share of DirecTV. Since Berkshire Hathaway owned 31.4 million shares of DirecTV as of March 31, 2015, that holding converts into 59.4 million shares of AT&T valued at approximately $2 billion at AT&T’s closing price of $34.29 on July 24. In addition, Berkshire Hathaway receives approximately $900 million in cash. Each share of DirecTV is, therefore, being valued at $93.38.

In his 2012 letter to shareholders, Warren Buffett said that DirecTV was a combined purchase of Todd Combs and Ted Weschler. When this deal was announced in May, 2014, Messrs. Combs and Weschler issued a joint statement: “This is a terrific transaction for all involved: Enhanced choice for consumers, coupled with increased value for both AT&T and DirecTV shareholders – a natural.” The two portfolio managers built Berkshire’s stake in DirecTV beginning in 2011 at an average cost of about $60 per share.

Kiplinger’s has published an article, “6 Best Buffett Stocks To Buy Now” (July 23, 2015). The six Berkshire Hathaway (BRK.A, BRK.B) stocks that are recommended are (1) Wells Fargo (WFC), (2) Kraft Heinz (KHC), (3) International Business Machines (IBM), (4) American Express (AXP), (5) Visa (V), and (6) Mastercard (MA). The first four are investments of Warren Buffett, while the last two are those of Todd Combs. I am quoted in several places in this article:

“Of course, you shouldn’t imagine that you’ll make a fast buck emulating Buffett, says David Kass, a professor of finance at the University of Maryland’s business school, who studies Buffett and is a Berkshire shareholder. Buffett is usually looking for out-of-favor companies that are selling at a discount to their intrinsic value. He expects those bets to pay off in a matter of years—sometimes decades.”

“Still, if you’re willing to get rich slowly, there’s no better mentor than Buffett. Standard & Poor’s 500-stock index has returned a respectable 9.9% annualized since 1965, when Buffett took control of a textile manufacturer called Berkshire Hathaway. But Berkshire’s book value (assets minus liabilities), Buffett’s preferred measure of his company’s performance, has climbed an annualized 19.4%. And Berkshire’s A shares (BRK-A), which go back to 1965, have done even better, soaring from roughly $15 to an astonishing $215,421, for a gain of 21.6% annualized. “Investors with patience could do very well following his lead,” says Kass.”

“However, Kass says these purchases (Visa and Mastercard) were likely not orchestrated by Buffett. Instead, he attributes them to Todd Combs, a 44-year-old former hedge fund manager who is investing a piece of Berkshire’s portfolio. Combs owned MasterCard in Castle Point Capital, a hedge fund that he ran, says Kass. Combs was likely looking for opportunities to get back into the stock when he started managing money for Buffett in 2010. Should the wisdom of these investments be discounted because they weren’t made by Buffett? Not at all, says Kass. “The market may give them less weight, but I don’t,” he says.”

“Combs and Ted Weschler, another former hedge fund manager who is now part of Berkshire’s investment team, outperformed Buffett in both 2012 and 2013, according to Berkshire company statements. Berkshire didn’t reveal the relative performance of its investment managers in 2014, but Kass is convinced the newer team members are doing well. “Buffett has been an exemplary investor for 30 years, but Weschler and Combs are exceptional investors, too.”

UncategorizedComments Off on The Stellar Kraft Heinz Board of Directors

Jul132015

On July 6, 2015, shares of Kraft Heinz (NASDAQ: KHC) began trading. This company, representing the merger of Kraft Foods Group and H.J. Heinz, is currently valued at about $100 billion at its closing price of $77.31 on July 10. Berkshire Hathaway (NYSE:BRK.A, BRK.B) owns about 325 million shares, which represents approximately one quarter of the company, and is valued at $25 billion. Kraft Heinz is now Berkshire’s second largest investment behind only Wells Fargo (NYSE: WFC) with a current market value of $26 billion. 3G Capital also owns about one quarter of the company.

The board of directors of Kraft Heinz consists of 11 members. Three of the members were selected by Berkshire Hathaway, three by 3G Capital, and the remaining five by Kraft Foods.

Representing Berkshire Hathaway are Warren Buffett (age 84), Greg Abel (age 52), and Tracy Britt Cool (age 30). Kraft Heinz is the only publicly traded company that Mr. Buffett is a Director, in addition to Berkshire Hathaway where he is Chairman and Chief Executive Officer. Previously he had been a Director of the Coca-Cola Company and the Washington Post Company. He also served on the privately held Heinz board of directors from June 2013 until its merger with Kraft Foods.

Both Greg Abel and Tracy Britt Cool have also served on the Heinz board of directors from June 2013. Mr. Abel has served as Chairman, Director, Chief Executive Officer and President of Berkshire Hathaway Energy, an electric and natural gas service provider with more than 11.5 million customers worldwide, since 2000. As a result of his managerial experience, he provides the board of directors with strong operational skills. He is considered by many to be one of the two most likely candidates, along with Ajit Jain, to eventually succeed Warren Buffett as CEO at Berkshire Hathaway. Ms. Cool has also served on the Heinz board of directors since 2013 and has experience as chairman of several Berkshire Hathaway subsidiaries and has served as Financial Assistant to the Chairman of Berkshire Hathaway since 2009.

The three Kraft Heinz board members from 3G Capital are Jorge Paulo Lemann (age 75), Alexandre Behring (age 48), and Marcel Herrmann Telles (age 65) have all served on the Heinz board of directors since June 2013. Mr. Lemann is a Founding Partner of 3G Capital (2004-present) and a Director of Anheuser-Busch InBev (2004-present). Mr. Behring, who is the Chairman of Kraft Heinz board of directors, is also the Managing Partner of 3G Capital (2004-present) and Director and Chairman of Burger King Worldwide Holdings (October 2010-present). Mr. Telles is a Founding Partner of 3G Capital (2004-present), a Director of Anheuser-Busch InBev (2004-present) and a Director of AmBev (2000-present).

The five board members selected by Kraft Foods are: John T. Cahill (age 57), L. Kevin Cox (age 51), Jeanne P. Jackson (age 63), Mackey J. McDonald (age 68) and John C. Pope (age 66). Mr. Cahill is the Vice Chairman of Kraft Heinz and served as the Chairman and Chief Executive Officer of Kraft since December 28, 2014. He was an executive for nine years with PepsiCo, Inc. and currently serves as a director of American Airlines Group and the Colgate-Palmolive Company. Mr. Cox served on the Kraft board since October 2012, has served as Chief Human Resources Officer of American Express Company since April 2005 and was an executive at PepsiCo, Inc. for 16 years. Ms. Jackson has also served on the Kraft board since October 2012 and serves as a director of McDonald’s Corporation. She has held senior positions at NIKE, Inc., Walmart, Gap Inc., Victoria’s Secret, Saks Fifth Avenue, Federated Department Stores, and Walt Disney Company. Mr. McDonald served on the Kraft board since October 2012 and was Chief Executive Officer at VF Corporation, an apparel manufacturer. Finally, Mr. Pope served on the Kraft board since August 2012 and is Chairman of the Board of R.R. Donnelly and Sons Co.

Kraft Heinz is the only publicly traded company where both Warren Buffett and Jorge Lemann are on its board of directors. Mr. Buffett is considered to be the world’s greatest investor and allocator of capital. Mr. Lemann and his colleagues at 3G Capital, are among the world’s best operating managers. Over the past two years, 3G Capital has substantially reduced expenses at Heinz while simultaneously growing its business. Their goal for Kraft Heinz is to cut $1.5 billion in annual costs by the end of 2017 while increasing revenues. With the unique combination of a board of directors composed of top managers from both Berkshire Hathaway and 3G Capital, along with directors from Kraft, the outlook for Kraft Heinz is extremely bright.